Network Metals LLC

News out of China yesterday and today says that treatment and refining charges for copper have dropped more than 30% over the past six weeks. Chinese smelters are charging less to process imported concentrates which in our view is meant make up for the "shortage" in scrap (see next paragraph). Increased demand for concentrates from Chinese smelters is just another way for Chinese smelters to pick up copper units that scrap could not fill. The Chinese do not want to import cathode because that takes the domestic labor element out of the equation, and importing scrap and concentrate allows more Chinese people to find work at the smelters.

Something that caught our eye in particular was that Chinese imports of scrap fell 39% in March, while at the same time imports of concentrate rose 11%. This validates our theory that the tightness in copper scrap was a matter of availability and not increased demand. Despite these superficially bullish signals, Chinese domestic demand is not picking up. If they were, there would be no need to incentivize the metal exports with rebates.